MONTH IN PICTURES JULY 2019

MONTHLY SNAPSHOTNOTABLE EVENTS

July saw the local equity market return to negative territory, with the Capped SWIX shedding 3.1%. Financials(-6.4%), Resources (-5.2%) and Listed Property (-1.2%) were the worst affected, while Industrials (+1.2%)managed to show a small gain.

The local bond index (-0.7%) was initially boosted by expectations for, and the eventual realisation of, a 25 basispoint (0.25%) cut in the repo rate, but came under renewed pressure at the end of the month after theannouncement of a further R59 billion bailout for Eskom.

A warning from Moody’s that this bailout would be ‘credit negative’, followed by Fitch’s change in their credit ratingoutlook for SA from stable to negative, put further strain on interest rate sensitive assets (bonds, financial stocksand the Rand).

The Rand ended the month 1.7% weaker against US Dollar (moving from R14.10 to R14.34), but traded as low asR13.84 prior to the Eskom announcement.

Global equities ended the month slightly up in US Dollars (+0.3%), which translated into a decent 2% gain forSouth African investors in local currency terms.

The US Federal Reserve lowered interest rates by 25 basis points (its first cut in 10 years), but still managed tospook markets by seemingly not being dovish enough in their future outlook.

Domestic economic data painted a mixed picture. While the unemployment rate rose to a disappointing multi-yearhigh (29%), vehicle exports (+22% year-on-year) and production data (Absa PMI moving from 46.2 to 52.1)showed notable improvements.

Unfortunately, by mid-August, global markets (including South Africa) have taken another turn south on globalrecession fears and Trump’s announcement of a 10% tariff on the $300 billion of Chinese imports (mostlyconsumer goods) that have escaped any taxation until now.

MONTHLY TIMELINEIMPACT ON MARKETS

Source: Iress

MARKET INDICATORSSHORT TERM

Market indicators (% change) 1 May 2019 Jun 2019 Jul 2019 3 months 12 months

Local equities

Capped SWIX (4.8) 2.9 (3.1) (5.1) (3.5)

Resources (5.1) 10.2 (5.2) (0.9) 16.5

Industrials (6.0) 3.8 1.2 (1.2) (0.5)

Financials (2.3) 1.3 (6.4) (7.4) (5.5)

Listed Property (0.9) 2.2 (1.2) 0.1 0.1

Local bonds ALBI 0.6 2.3 (0.7) 2.2 8.1

Local cash STeFI Composite 0.6 0.6 0.6 1.8 7.3

Global equities MSCI All Country (4.1) 3.0 2.0 0.8 11.2

Global bonds FTSE WGBI 3.7 (1.1) 1.3 3.9 13.9

Exchange rate ZAR/USD 2.0 (3.3) 1.7 0.3 8.0

Inflation 2 CPI 0.3 0.4 0.8 1.5 4.5

Source: Iress

1. Total returns (in Rands) for the months and periods ending 31 July 2019.2. Y-o-y CPI for July 2019 assumed to be equal to that of June 2019.

MARKET INDICATORSMEDIUM TO LONG TERM

Market indicators (% change) 1 1 year 3 years 5 years 10 years 15 years

Local equities

Capped SWIX (3.5) 0.9 3.4 11.6 15.2

Resources 16.5 16.8 (1.2) 3.8 9.7

Industrials (0.5) 2.3 5.7 15.8 18.5

Financials (5.5) 2.9 5.4 13.2 14.5

Listed Property 0.1 (3.7) 5.0 12.0 16.8

Local bonds ALBI 8.1 8.8 8.2 8.8 8.9

Local cash STeFI Composite 7.3 7.4 7.1 6.5 7.3

Global equities MSCI All Country 11.2 11.5 12.9 16.2 13.4

Global bonds FTSE WGBI 13.9 1.9 7.0 8.4 9.3

Exchange rate ZAR/USD 8.0 1.2 6.0 6.3 5.7

Inflation 2 CPI 4.5 4.7 5.0 5.2 5.7

Source: Iress

1. Total returns (in Rands) for the months and periods ending 31 July 2019.2. Y-o-y CPI for July 2019 assumed to be equal to that of June 2019.

ECONOMIC INDICATORS

Economic indicators 1 Jul 2017 Jul 2018 May 2019 Jun 2019 Jul 2019

Exchange rates:

ZAR/USD 13.17 13.28 14.58 14.10 14.34

ZAR/GBP 17.38 17.42 18.42 17.89 17.44

ZAR/Euro 15.57 15.52 16.29 16.03 15.88

Commodities:

Brent Crude Oil (USD/barrel) 52.72 74.06 61.63 64.41 64.30

Platinum (USD/ounce) 940.00 825.07 791.50 833.00 873.00

Gold (USD/ounce) 1,269.50 1,218.30 1,305.20 1,409.10 1,430.59

1. Month-end prices

Source: Iress

ASSET CLASS PERFORMANCESHORT TERM

Source: Iress

ASSET CLASS PERFORMANCEMEDIUM TO LONG TERM

Source: Iress

ASSET CLASS PERFORMANCEREAL (EXCESS ABOVE INFLATION) RETURNS

Source: Iress

MARKET PERFORMANCEWHAT PAST RETURNS CAN INVESTORS

REASONABLY EXPECT?

Given the performances of the various asset classes (see earlier slides), what level ofreturns (in both nominal and real terms) can investors reasonably expect from the market(see next two slides), assuming the following asset class allocations:

Asset classAsset class allocation per risk profile

Aggressive Moderate Conservative

Local equities 60% 40% 25%

Global equities 15% 15% 10%

Total growth assets 75% 55% 35%

Local bonds 15% 25% 30%

Local cash 5% 15% 25%

Global bonds 5% 5% 10%

Total income assets 25% 45% 65%

TOTAL 100% 100% 100%

MR MARKET PERFORMANCEFOR BALANCED PORTFOLIOS, WHAT RANGE OF PAST NOMINAL RETURNS WAS REASONABLY ACHIEVABLE?

Source: Iress

MR MARKET PERFORMANCEFOR BALANCED PORTFOLIOS, WHAT RANGE OF PAST

REAL RETURNS WAS REASONABLY ACHIEVABLE?

Source: Iress

MR MANAGER PERFORMANCEFOR BALANCED PORTFOLIOS, WHAT RANGE OF PAST NOMINAL RETURNS WAS REASONABLY ACHIEVABLE?

Source: ASISA

MR MANAGER PERFORMANCEFOR BALANCED PORTFOLIOS, WHAT RANGE OF PAST

REAL RETURNS WAS REASONABLY ACHIEVABLE?

Source: ASISA

SA UNEMPLOYMENTREACHES A RECORD HIGH

Source: StatsSA

SA UNEMPLOYMENTBREAKDOWN OF WORKING AGE POPULATION

Source: StatsSA

SA UNEMPLOYMENTBREAKDOWN BY LEVEL OF EDUCATION AND AGE

Source: StatsSA

SA UNEMPLOYMENTPRIVATE HOUSEHOLDS AND THE FORMAL SECTOR

SHEDDING JOBS

Source: StatsSA

SA MANUFACTURING (ABSA PMI)GREEN SHOOTS?

Source: Absa, BER

SA MANUFACTURING (ABSA PMI)IMPROVEMENT WELL SUPPORTED BY UNDERLYING

SUBCOMPONENTS

Source: Absa, BER

LONG TERM CYCLESACTIVE VS PASSIVE

Source: Iress, Morningstar, MSCI

LONG TERM CYCLESVALUE VS GROWTH

Source: Iress, MSCI

LONG TERM CYCLESEMERGING VS DEVELOPED MARKETS

Source: Iress, MSCI